Question 1

Which of the following statements is not correct?

Accepted Answer

A) A patent is a way for the government to encourage the production of a good with technology spillovers. 
B) A tax is a way for the government to reduce the production of a good with a negative externality. 
C) A tax that accurately reflects social costs produces the socially optimal outcome. 
D) Government policies cannot improve upon private market outcomes. 
A) A patent is a way for the government to encourage the production of a good with technology spillovers. 
B) A tax is a way for the government to reduce the production of a good with a negative externality. 
C) A tax that accurately reflects social costs produces the socially optimal outcome. 
D) Government policies cannot improve upon private market outcomes.

Question 2

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $11-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Accepted Answer

A) They are equal. 
B) The equilibrium quantity is greater than the socially optimal quantity. 
C) The equilibrium quantity is less than the socially optimal quantity. 
D) There is not enough information to answer the question. 
A) They are equal. 
B) The equilibrium quantity is greater than the socially optimal quantity. 
C) The equilibrium quantity is less than the socially optimal quantity. 
D) There is not enough information to answer the question.

Question 3

If education produces positive externalities and the government does not intervene in the market, we would expect

Accepted Answer

A) the equilibrium price to be higher than the optimal price. 
B) the equilibrium quantity to be lower than the optimal level. 
C) the equilibrium quantity to be higher than the optimal level. 
D) both a and b are correct 
A) the equilibrium price to be higher than the optimal price. 
B) the equilibrium quantity to be lower than the optimal level. 
C) the equilibrium quantity to be higher than the optimal level. 
D) both a and b are correct

Question 4

When externalities are present, reaching an efficient outcome is especially difficult when the number of interested parties is large.

Accepted Answer

A) True 
 B)False

Question 5

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

Accepted Answer

The new supply curve

Question 6

Suppose a new market for tradable pollution permits is created. As long as there is a free market for the pollution rights, the final allocation will be __________ , regardless of the initial allocation of permits.

Accepted Answer

The answer of Suppose a new market for tradable pollution...

Question 7

A former senator remarked that "We cannot give anyone the option of polluting for a fee." Do most economists agree with this statement, or do they disagree with it?

Accepted Answer

Most econo

Question 8

Figure 10-4  
-Refer to Figure 10-4. The socially optimal quantity would be

Accepted Answer

A) Q1. 
B) Q2. 
C) Q3. 
D) Q4. 
A) Q1. 
B) Q2. 
C) Q3. 
D) Q4.

Question 9

Using a supply and demand diagram, demonstrate how a positive externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Accepted Answer

@#IMG-DLM& When a positive externality exists, the

Question 10

The Coase theorem states that

Accepted Answer

A) taxes are an efficient way for governments to remedy negative externalities. 
B) subsidies are an efficient way for governments to remedy positive externalities. 
C) industrial policies encourage technology spillovers. 
D) in the absence of transaction costs, private parties can solve the problem of externalities on their own. 
A) taxes are an efficient way for governments to remedy negative externalities. 
B) subsidies are an efficient way for governments to remedy positive externalities. 
C) industrial policies encourage technology spillovers. 
D) in the absence of transaction costs, private parties can solve the problem of externalities on their own.

Question 11

Corrective taxes enhance efficiency, but the cost to administer them exceeds the revenue they raise for the government.

Accepted Answer

A) True 
 B)False

Question 12

In some circumstances, selling pollution permits may be better than levying a corrective tax.

Accepted Answer

A) True 
 B)False

Question 13

Figure 10-12  
-Refer to Figure 10-12. An alternative label for the quantity   would be

Accepted Answer

A)   
) 
B)   
) 
C)   
) 
D)   
) 
A)   
) 
B)   
) 
C)   
) 
D)   
)

Question 14

Use a graph to illustrate the quantity of pollution that would be emitted (a) after a corrective tax has been imposed and (b) after tradable pollution permits have been imposed. Could these two quantities ever be equivalent?

Accepted Answer

@#IMG-DLM& Yes, these two quantities cou

Question 15

That some firms are engaged in more than one type of business is explained, in some cases, by

Accepted Answer

A) moral injunctions such as the Golden Rule. 
B) the existence of charitable organizations. 
C) government regulations that discourage the internalization of externalities. 
D) the fact that the internalization of externalities sometimes coincides with the self-interest of the relevant parties. 
A) moral injunctions such as the Golden Rule. 
B) the existence of charitable organizations. 
C) government regulations that discourage the internalization of externalities. 
D) the fact that the internalization of externalities sometimes coincides with the self-interest of the relevant parties.

Question 16

Table 10-1
The following table shows the private value, private cost, and external cost for various quantities of output in a market.  
-Refer to Table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Accepted Answer

A) $2 
B) $3 
C) $9 
D) $10 
A) $2 
B) $3 
C) $9 
D) $10

Question 17

A corrective tax is also known as:

Accepted Answer

A) a command-and-control regulation. 
B) a Coase tax. 
C) a Pigovian tax. 
D) a Smithian tax. 
A) a command-and-control regulation. 
B) a Coase tax. 
C) a Pigovian tax. 
D) a Smithian tax.

Question 18

Which of the following statements about the Coase theorem is true?

Accepted Answer

A) Underlying the results of the Coase theorem is the idea that private parties can bargain without cost over the allocation of resources. 
B) The Coase theorem asserts that private solutions to externalities invariably lead to inefficient allocations of resources. 
C) The Coase theorem applies to negative externalities, but not to positive externalities. 
D) All of the above are correct. 
A) Underlying the results of the Coase theorem is the idea that private parties can bargain without cost over the allocation of resources. 
B) The Coase theorem asserts that private solutions to externalities invariably lead to inefficient allocations of resources. 
C) The Coase theorem applies to negative externalities, but not to positive externalities. 
D) All of the above are correct.

Question 19

Figure 10-9      
-Refer to Figure 10-9, Panel (b) and Panel (c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point

Accepted Answer

A) Q2 to point Q3. 
B) Q3 to point Q2. 
C) Q4 to point Q5. 
D) Q5 to point Q4. 
A) Q2 to point Q3. 
B) Q3 to point Q2. 
C) Q4 to point Q5. 
D) Q5 to point Q4.

Question 20

The impact of one person's actions on the well-being of a bystander is called

Accepted Answer

A) an economic dilemma. 
B) deadweight loss. 
C) a multi-party problem. 
D) an externality. 
A) an economic dilemma. 
B) deadweight loss. 
C) a multi-party problem. 
D) an externality.

Exam 10: Externalities

Which of the following statements is not correct?

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $11-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

If education produces positive externalities and the government does not intervene in the market, we would expect

When externalities are present, reaching an efficient outcome is especially difficult when the number of interested parties is large.

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

Suppose a new market for tradable pollution permits is created. As long as there is a free market for the pollution rights, the final allocation will be __________ , regardless of the initial allocation of permits.

A former senator remarked that "We cannot give anyone the option of polluting for a fee." Do most economists agree with this statement, or do they disagree with it?

Figure 10-4 -Refer to Figure 10-4. The socially optimal quantity would be

Using a supply and demand diagram, demonstrate how a positive externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

The Coase theorem states that

Corrective taxes enhance efficiency, but the cost to administer them exceeds the revenue they raise for the government.

In some circumstances, selling pollution permits may be better than levying a corrective tax.

Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be

Use a graph to illustrate the quantity of pollution that would be emitted (a) after a corrective tax has been imposed and (b) after tradable pollution permits have been imposed. Could these two quantities ever be equivalent?

That some firms are engaged in more than one type of business is explained, in some cases, by

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

A corrective tax is also known as:

Which of the following statements about the Coase theorem is true?

The impact of one person's actions on the well-being of a bystander is called

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

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